SF Business Times, September 5, 1997

Most people have no idea how schools spend their 40 percent of the state’s budget. Surprisingly, most administrators don’t either.

Consider the case of Rosemarie Avila, a member of the Santa Ana Unified School District’s school board. She knows that money controls education, s“But it’s too complicated for me to really understand.s”

The district is roughly the eighth-largest in California. It has a $290 million budget and serves 50,000 students. Avila continues, s“Not being trained in finance or accounting, I work with other board members to understand the district’s voluminous budget. Often as not, though, I must trust the district Controller.s”

Bob Giritz, the district’s controller, analyzes the district’s budget daily. According to him, s“California’s education finance system is terribly complicated.s“ To determine the revenue generated just by Special Education requires 8 to 10 pages of single-entry listings. Determining and reporting who has spent this revenue where is an entirely different and equally demanding challenge.

Californians do not require the education system to account for its budget. Despite much hoopla, neither the public nor California’s school board members learned very much about how California spends its education money during the recent budget debates. Like Avila, they do not understand education finance and rely on the experts.

Two related, but separate problems in California K-12 education prevent this accounting. First, schools do not report how they spend California’s education budget to the public in a form the average citizen can understand. Second, Sacramento legislators have so skewed California’s education funding mechanisms that no one is accountable when funding priorities are misaligned.

Recognizing that many schools face these problems, the international accounting firm Coopers & Lybrand developed a software package called In$ite. In$ite overlays a school’s existing accounting software. Importing data directly from the school’s accounting software, In$ite users can generate reports that clearly show how the school is using its entire budget.

On July 16, South Carolina issued In$ite-generated reports for public review. These reports are the nation’s first analysis of how each school in an entire state spent 100 percent of their money. Because the reports translate education and accounting jargon into lay terms, parents, school board members, principals and state legislators can better decide how to structure school budgets.

Reporting, though, is only the first step toward setting the budget. Both the Legislative Analyst’s Office and the Little Hoover Commission have recently issued reports that begin to explain the revenue problem. California’s complicated funding formulas and an endless array of supplementary programs render a school’s revenues impenetrable. In California, determining the base requires seven steps and more than 40 pages of detailed analysis. Tracking California’s more than 80 supplemental programs further complicates a school’s budget.

Some principals control only 18 percent of their budget. Various Washington and Sacramento bureaucrats use supplemental programs to dictate how the school spends the rest. With discretionary authority for spending spread over so many people, no one person is accountable for the entire budget. These revenue complexities exacerbate the reporting problem. Very few people could report how a school spends all its revenues. Individuals responsible for one program understand and could report how their program spends its money, but few people understand a school’s entire budget well-enough to report and explain all the school’s spending decisions.

The Legislative Analyst’s Office and the Little Hoover Commission recommend similar solutions to these revenue problems. Instead of tying funds to specific programs, California should provide schools with block grants. Block grants would allow schools to use the money in ways that will most benefit their unique situations. Rather than spending their budgets on counting daily attendance, collecting s“sicks” notes from home or monitoring the faculty’s credentials, they would be able to purchase textbooks, repair leaking roofs and provide more teacher development opportunities.

California needs to follow South Carolina’s lead and explain precisely how each school, district and the state Department of Education spend each budget dollar. Not until California’s education faces a full public accounting will they begin to see the problems inherent in their funding mechanism. And not until California’s educrats report how they spend their budgets will they face such a public accounting.

M. Royce Van Tassell is education policy fellow at the Pacific Research Institute for Public Policy.